Kingston school district Superintendent Paul Padalino's former district could be one of the first in the state to reach what educators have described as educational and fiscal insolvency under New York's new tax cap.

Lori Caplan, superintendent of the Watervliet school district, near Albany, said in a telephone interview that without some creative budget solutions, her district is on track to have to cut all non-mandated programs over the next two years.

Early estimates indicate the Watervliet district faces a shortfall of $900,000 in 2013-14 if it merely carries over this year's costs, said Caplan, who served as Watervliet's high school principal under Padalino before he became head of the Kingston schools in January.

Caplan said the deficit is being driven, in large part, by surging health insurance and pension costs, a problem that is fueling budget shortfall projections around the state.

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The current budget in Watervliet -- a high-needs district where about two-thirds of the student body qualifies for free or reduced-priced lunch -- is about $23 million.

Asked if Padalino's management of the Watervliet district during his five years as superintendent contributed to its current fiscal crisis, Caplan replied: "On the contrary."

Caplan said Padalino turned the Watervliet school district around and that the district faces the same problems as every other one in New York state because of the tax cap, the current state aid structure and numerous state mandates.

She said the district was $1.4 million in the red when Padalino took the helm but that, three years later, there was a surplus of about $173,000.

Two years ago, Padalino used $800,000 of the district's $1.1 million in financial reserves, and last year, Caplan used the rest, she said

In hindsight, Caplan said perhaps the district should have spent less of its fund balance two years ago, but at the same time, the governor was pushing school districts all over the state to drain their fund balances to make up for gaps in state aid, and the tax cap was not yet the law of the land.

Padalino said on Tuesday that he initially proposed a budget with more cuts, but the Watervliet school board asked for many of the cuts to be restored.

Caplan said non-mandated programs like Advanced Placement classes and after-school activities are important to the community. Programs like sports and music keep students "off the streets" and interested in school when they otherwise might not be, she said.

Padalino and Caplan both said some of the specifics of Watervliet's situation have brought the district to the brink more quickly than others in the state. They described the city as densely populated and having a small tax base with 56 percent of the property being tax-exempt, the result of the city being home to Watervliet Arsenal, a federal military facility.

In a recent survey, the New York State Council of School Superintendents reported 41 percent of respondents expected their districts to face fiscal insolvency within four years, and 77 percent envisioned not being able to afford state and federal requirements during the same period.

Districts know there is no more money available for state aid, but the way state funding is distributed needs to be changed to give high-needs districts like Watervliet and Kingston their fair share, Caplan said. Otherwise, she said, her district is entering an era in which every class will get a worse education than the group before it.